Tuesday, 19 November 2013

Simon Townsend... not quite a new broom...

So Ted Tuppen is to retire from his role as CEO of Enterprise Inns in 2014... here are his farewell remarks made to City analysts where he bigs up those he leaves behind...

“I feel like Sachin Tendulkar walking to the
crease for the last time without the talent and without the adulation. So where
have we got to on this journey to rehabilitation? It has been a good year after
a tricky start ending with like-for-like growth in Quarter Four, a trend that’s
continued in the first seven weeks of the year. You’ve heard from Simon Townsend
how hard we are now working and the progress we are now making to deliver
against this key like-for-like challenge for 2014. What have we achieved? Well,
we have certainly dealt with Stage One. We have reduced our debts by well over
£1billion with our bank overdraft now standing at just £41million net. This
reduction in the level of our borrowings has been reflected in the increased
value of the equity of our business and you will recall that we explained that
in some charts last year – we would focus on paying down debt as we could see
that creating real value for shareholders.

We have successfully launched our
£100million convertible bond, reducing the cash cost of our borrowings and
extending the maturity thereof. We have a tax efficient structure and a
manageable amortisation profile that will no longer require asset disposals to
pay down debt - and that is hugely important. Getting the confidence of the
market that we were going to continue to be here was probably going to be worth
about £1 per share.

So what next? Sustainable like-for-like growth in income per
pub - we’ve done (that for) a quarter and we’ve done another seven weeks
(since). But the key is to continue this, to deliver sustainable like-for-like
income growth. The comparables for the coming year are reasonably helpful and
all we have to do is deliver like-for-like income growth. The whole business is
structured to deliver that growth and everyone in the company is aware of what
we have to do to drive publican profitability and reduce the cost of business
failures. Stage Two is being achieved and the sustainable bit is within reach
and I think if we can deliver sustainable like-for-like income growth that ought
to be worth £2 per share.

To some extent we have already dealt with Stage Three.
Subject to the impact of our historic disposal programme working its way out of
the business over the next few years, we should now be in a position where, if
we get like-for-like income growth and we efficiently recycle disposal proceeds
back into the estate, we have a genuine expectation of delivering real EBITDA
growth. EBITDA growth leads to additional cash generation, improving pub values,
amortising debts and increasing value for shareholders. (We) reckon this ought
to be worth at least £3 per share. And if you look at the share price over the
last few years it’s been an interesting journey. The green line is our
underlying asset value and I have to say, I’m pretty proud of the fact that
during this very tumultuous, tempestuous period of the last few years we have
managed to keep that green line pretty stable around about the £3 per share
level. There was a moment of massive over excitement in 2006 as you can see by
the black line - the level to which the share prices fell at around 25p. But the
nice thing is if you just look at us getting control of things over the last
three years you can see that we have moved from 88% discount to net asset value
to a smaller number now. We are making real progress and we just have to
continue that journey.

Who is going to deliver the next part of that journey? I
leave the board on 6 February and will be around for a while after that to just
make sure the team are not distracted from those key operational tasks by the
outcome of Vince Cable’s consultation. I have taken responsibility for dealing
with that and will continue to do so. We have been building this succession
infrastructure for a few years now and the board is confident that we have got
it right. (Our finance director) Neil Smith has been with us for three years
now, has had a tremendous impact on the business and has built real confidence
amongst you and our institutions. James Croft, our property director, has been
with Enterprise for ten years, first of all in finance roles. He has now been in
charge of property for a couple of years and we have seen his robust approach
have a very positive impact on the overall condition of the estate, through
investment and enforcement, both of which are equally important. As well as
driving our disposal programme and our capital expenditure programme towards a
higher level of profit generation we have a very clear task - and that is to be
able to use 60%, say, of our £60 million a year disposal proceeds for really
driving the business forward, proper trade-generating capex. (Commercial
director)

Ed Cottrell, two years in, has had to deal with the collapse of
WaverleyTBS and, at just the wrong time this September, had to deal with the
strike and the work-to-rule by our major beer supplier, our only beer supplier.
These have been very time-consuming and Ed has done a fantastic job. At the same
time as dealing with these real crises, he has launched our Sky and BT
entertainment packages, made available free Wi-Fi across the entire estate and,
most importantly, built a team around him that will drive innovation and sales
growth across the business.

On the operations side, you’ll see that there won’t
be a Chief Operating Officer (COO) because we have developed our three managing
directors, Nick Light, Ian Ronayne and Kim Francis, to take on the roles of
regional or sector COOs. So we have a COO North, a COO Midlands and a COO South.
It has been their responsibility, with full understanding of the challenges, to
make sure they have (created) a fully committed, skilled and effective team of
divisional directors and regional managers, who completely ‘get it’ and who will
deliver consistent improvement in publican ability, profitability and stability
– in short, to deliver growth across their sector of the business.

Finally, and
most importantly, is Simon Townsend, who joined me in 1999 and joined the board
in 2000 and became COO in 2006, just in time to get used to the job before the
crash came. Simon has worked tirelessly and with great integrity as we have
striven to keep our pubs open and our publicans profitable often in the face of
ill-informed and unjustified abuse from the campaign groups who seek to change
the business model for their own ends.

So I am confident in that team, I
wouldn’t be leaving otherwise and I am confident that I am leaving the business
in good hands to carry on with out clear strategy and to deliver real value for
our shareholders. The outlook? We are making progress on all fronts. I am
retiring in the knowledge that Enterprise is being run by a great team of people
and the whole team have real confidence in and total commitment to the
continuing success of Enterprise.”

In his opening remarks this asset stripper par exellence at least has the honesty to admit he neither has the talent of Sachin Tendulkar and that his departure will no be met with adulation. I can think of many hundreds of tenants and ex-tenants of his company who will certainly not shed a tear at his departure.

But note the emphasis on sweet-talking City Analysts into accepting a share value of £3, never have I seen such a cynical attempt to manipulate a share price, one that will bring this pugnacious retiree a fortune of many millions of pounds if he cashes in at that price. For the tenants (he insists are earning some £37,000 a year from his over-rented pubs buying his over-priced beer, whilst CAMRA proved 80% of tied tenants earned considerably less) this will be of no solace, as they've probably had no spare cash to invest in Enterprise shares.

At least those in "profitable" pubs will be relieved to learn that no more disposals will be required to service Enterprise's debts and their future in their respective pubs are today just a little more secure. What will make their lives easier, fairer and more profitable will be the "distraction" of Dr Cable's consultation into the relationship between pubco/brewery landlords and their tenants, the outcome of which and the recommendations thereof are now overdue. It seems that Ted is not quite done buggering up the pub industry however, as he seems to indicate he will be sticking around to have his usual reasoned and temperate (not) say in whatever BIS comes up with.

One can only hope those who remain do concentrate on "publican profitability and stability", honour Ted's "pledge" to cap beer price increases (a bit of a joke given the eye-watering level being charged currently) even in the face of "ill-informed" campaigners who just want the over-arching principle of "no tied tenant being worse off than a free of tie tenant" which Parliament has expressed as its will in this matter.

If it weren't so painful for many Enterprise tenants this type of
self-serving tosh might be mildy amusing, but I fear Ted may yet have
the last laugh as he swans off into the sunset counting his grubby
millions.